Rosenblatt: Zscaler has an 'accelerating growth trajectory'

Investing.com -- Rosenblatt upgraded Zscaler (NASDAQ:ZS) to Buy with a price target of $235, citing the company’s strong Q2 performance and improving growth trajectory. 

Analysts noted that “Zscaler's latest results exceeded expectations, driven by improving billings growth and margin expansion.”

“Improved marketing (Zero Trust Everywhere) and growing sales productivity are driving more significant deals and up-sells,” said Rosenblatt. 

The firm notes that calculated billings grew 18% year-over-year to $743 million, surpassing Street estimates by $23 million. Management attributed the strong performance to unscheduled billings, which rose 25% year-over-year.

Following the strong Q2, management raised its FY25 billings outlook by $24 million, implying 21% year-over-year growth. The company also reaffirmed its second-half 2025 billings guidance, with Q3 and Q4 billings projected to grow ~21% and ~25% year-over-year, respectively.

Revenue of $657.9 million grew 23% year-over-year, exceeding the midpoint of guidance by 2%. 

Operating margin of 21.7% was 160 basis points ahead of expectations, and free cash flow of $143 million (22% margin) significantly outperformed the Street estimate of $71 million (11% margin).

Zscaler also saw success with large customers, adding five new customers with contracts exceeding $5 million and 35 new customers with contracts over $1 million.

Looking ahead, management raised revenue growth guidance to 22% year-over-year while projecting an operating margin of 21.4% and free cash flow margins of 24.5% - 25%.

Rosenblatt concluded: “The combined improvements in GTM motion, sales productivity, and broader platform momentum lead us to believe the company can sustain durable growth.”